The Great Recruitment Crisis

My attention this week is on the jobs market, where alarm bells are certainly ringing.

Why? Businesses across Britain are short of workers across scores of sectors and at all skill level. Firms are finding it harder than ever to recruit skilled workers. Almost three-quarters of services businesses are struggling to make the hires they need.

A recent survey from the British Chamber of Commerce (BCC) suggests that skills shortages reached ‘critical levels’ in the last quarter of 2017, putting growth at risk, with a record number of firms reporting recruitment difficulties.

This was coupled with the views of Kevin Green, chief executive of the Recruitment and Employment Confederation Agency, who suggested that companies were having to raise their salaries to attract staff at all levels due to scarcity of numbers.

“It is comprehensive, you would have to say the skill and talent shortages are pervasive across the economy at the moment,” he noted.

Mr Green expects employers to continue to raise their salary offers to attract more workers while potentially have to increase wages for existing employees in order to retain them in the face of better offers from elsewhere.

Recruiters reported sustained growth in vacancies combined with one of the biggest falls in candidate availability for two years, indicating the low level of unemployment has made it hard for employers to recruit staff.

While this looks good for wage growth prospects, what’s more troubling is how we are going to fill these vacancies.

The prospect of Brexit looming certainly isn’t helping matters. The drop in the number of European workers threatens to compound the concerns around recruitment in what is already a tight labour market. Unemployment at 4.3% is at its lowest level since 1975.

Since the vote to leave the EU, there has been a sharp rise in the number of European migrants leaving Britain.

In the year to June 2017, 129,000 EU citizens left the UK, a rise of 29% on the previous period and those arriving fell from 284,000 to 230,000. Overall, net migration of EU citizens fell by 43%; among those from the ‘A8’ countries of central and eastern Europe, it fell by 81%.

A report commissioned by the construction industry in 2016 warned that within a decade the pool of labourers could shrink by 20–25%.

Last week, Michael Saunders, senior policymaker at the Bank of England, claimed that more EU citizens may leave than come to Britain within a few years.

Mr Saunders said that he ‘would not be surprised if (flows) turn negative – more people leave than arrive at some stage’. Mr Saunders argued that the fall would be caused by slowing growth in Britain. “Sterling’s Brexit-related depreciation has reduced incentives to work in the UK,” he said.

All very concerning and I’m not sure how quickly firms are responding to the drying up of the labour pool.

So what’s to be done? A course of action might be to pay higher wages, in order to recruit more local workers and retain EU employees. Improving conditions would be another way to fill vacancies. Or greater use of technology.

If firms cannot hang on to people, they may replace them with machines. In industries, such as food manufacturing and agriculture, there is considerable scope for further automation. The Resolution Foundation, a think-tank, has estimated that 10–35% of today’s jobs could be automated by the early 2030s.

Firms may begin to recruit more from among those who have been under-represented in the workforce. The elderly are certainly a potential source of new workers.

Between 1995 and 2015 the number of working people in Britain aged over 65 more than doubled to over 1 million. Still, their participation rate in the labour market is lower, at 11%, than the G7 average of 15%. Attracting these workers however will require companies to be flexible and to offer more training.

Dr Adam Marshall, director general of the BCC, said business itself ‘must do more’ to address skills shortages by training and investing wherever possible in people. Certainly, something needs to be done and firms need to do some forward planning.

As Brexit comes ever closer and the economies of the EU grow faster than Britain’s, the squeeze on the labour market is likely to tighten.